Agios Pharmaceuticals, Inc. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016. Unaudited results. Agios is a clinical-stage biopharmaceutical company developing therapies for cancer and rare genetic metabolic disorders; it had no product sales, and substantially all reported revenue to date came from Celgene collaborations.
Financial summary
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Collaboration revenue | $7.0 million | $13.2 million | $38.3 million | $47.4 million |
| Research and development expense, net | $50.8 million | $36.4 million | $94.8 million | $68.9 million |
| General and administrative expense | $12.6 million | $8.9 million | $23.5 million | $15.9 million |
| Operating loss | $56.5 million | $32.1 million | $80.1 million | $37.3 million |
| Net loss | $56.0 million | $31.9 million | $79.2 million | $36.9 million |
| Net loss per share, basic and diluted | $1.47 | $0.85 | $2.09 | $0.99 |
- At June 30, cash and cash equivalents were $234.0 million, current marketable securities $231.3 million, and non-current marketable securities $46.9 million: $512.3 million in combined cash, cash equivalents and marketable securities. Total assets were $557.6 million.
- Six-month operating cash flow was positive $138.8 million, compared with cash used of $21.6 million in 2015. The positive 2016 figure was driven principally by the $200 million Celgene upfront payment and the increase in deferred revenue; it should not be read as cash generated by recurring operations. Investing cash flow was positive $20.9 million and financing cash flow positive $2.6 million. Cash increased $162.3 million.
- Deferred revenue was $215.0 million in total, including $31.5 million current and $183.5 million non-current. The balance sheet shows no debt balance; the filing reports no off-balance-sheet arrangements. Stockholders’ equity was $289.1 million and accumulated deficit was $363.8 million.
- Operating margins are not a useful measure for this development-stage business: collaboration revenue did not cover operating expenses, and the company remained loss-making. No product revenue or near-term product revenue was expected.
Material changes and business developments
- Revenue declined 47% in Q2 and 19% for the first half year over year. The 2015 comparisons included revenue from earlier collaboration deliverables; 2016 revenue recognition changed after the new Celgene agreement. First-half 2016 revenue also included a $25 million AG-221 clinical-development milestone achieved and received in Q1.
- R&D expense rose 39% in Q2 and 38% for the first half; G&A rose 42% and 48%, respectively. Management attributed the increases to clinical and research activity, higher staffing and stock-based compensation, and expanded facilities. Headcount had increased 46% in R&D and 42% in G&A year over year.
- On May 17, 2016, Agios entered a new global Celgene research and collaboration agreement focused on immunotherapies against certain metabolic targets and received a $200 million upfront payment. The agreement provides for research-term extension fees, designation and option fees, potential milestones, and—in applicable programs—shared development costs and profits or royalties. Most additional payments depend on future events and are not assured.
- The discovery phase of the 2010 Celgene agreement expired in April 2016. Separately, the parties agreed that, effective August 15, 2016, Agios would regain global rights to AG-120 and the IDH1 program; Agios expects to fund future development and commercialization costs. This does not change the AG-881 collaboration.
- Agios reported initial DRIVE PK data for AG-348: 9 of 18 patients had a hemoglobin increase greater than 1.0 g/dL; enrollment continued. Early AG-519 data showed pharmacodynamic activity, with one reported Grade 2 low-platelet event in a multiple-dose cohort and no additional reported cases in later cohorts described in the filing.
Outlook, commentary and risks
- Management expected existing cash, cash equivalents and marketable securities, anticipated interest income and expected Celgene expense reimbursements to fund operating and capital expenditure needs through mid-2018. This estimate is subject to assumptions and may prove wrong. The filing identifies Celgene collaboration payments as the only committed potential external funding source.
- Agios expected expenses and operating losses to increase as it advances AG-221, AG-120, AG-881, AG-348 and AG-519 and expands research. Management planned to initiate a global registration-enabling AG-120 Phase 3 trial in frontline IDH1-mutant AML in the first half of 2017 and a randomized Phase 2 AG-120 trial in cholangiocarcinoma in the second half of 2016.
- Key uncertainties include clinical efficacy and safety, trial enrollment and timing, regulatory approval, manufacturing and commercialization, intellectual-property protection, and reliance on Celgene and other third parties. Celgene has options and termination rights under collaboration agreements; future payments and reimbursements are uncertain.
- Agios reported $66.0 million of cancellable vendor commitments, generally terminable on 30 days’ notice. It also cited interest-rate and foreign-currency exposure; it did not hedge foreign-currency risk. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of the $512.3 million liquidity balance remains available after operating costs, and whether the mid-2018 runway estimate remains supportable.
- How the $200 million Celgene upfront payment is recognized over time, the schedule and conditions for remaining deferred revenue, and the extent of future collaboration reimbursements.
- Progress, enrollment, safety and efficacy results for the lead programs, particularly AG-120 after the return of global rights and responsibility for future costs.
- Whether planned AG-120 trial timelines are met and whether the early AG-348 and AG-519 findings are confirmed in larger or longer-duration studies.
- How rising R&D and administrative spending, collaboration dependence, and potential future financing needs affect the company’s cash runway and shareholder dilution risk.